It goes without question that the last few weeks have been worrying for all. People’s lives have been turned upside down in a short space of time. Most businesses within the UK have been forced to close temporarily, leaving business owners and workers in a state of panic.
It is unsurprising that many professionals such as accountants, lawyers and insolvency practitioners will become busier in these times with many business owners turning to them to seek what options they have to preserve their business through this pandemic.
It does not seem that long ago that we were going through the last recession. With the relatively cheap lending and forbearance of Banks, HMRC and many other creditors, what emerged was a host of businesses who were living hand to mouth, month to month. These were later dubbed, Zombie companies. It wouldn’t take a lot to push these businesses over the edge, with many falling into an insolvency process. You don’t have to look far, certainly on the high street, to notice some of these which have already fallen. The current situation will surely be the final straw for many others.
But, with this current pandemic, brings with it a new wave of problems. Some businesses a few weeks ago which were thriving and looking forward to a profitable future have now had that taken away at no fault of their own. Their businesses have essentially fallen off a cliff.
As Licensed Insolvency Practitioners, we will typically be one of the first ports of call for struggling businesses. Ordinarily, an Insolvency Practitioner will sit down with the directors, review forecasts and come up with one or more proposals of how to deal with the current and future financial pressures. One of these options is typically a Company Voluntary Arrangement. However, the reality is that without being able to demonstrate any meaningful cash-flow forecast, it is near impossible for a Proposal to be put to creditors at this time. Similarly, there are various practical issues for an Insolvency Practitioner looking to trade or sell a business through an Administration process. It is therefore likely that many companies will be hand-held during the forthcoming weeks to review the position once we get through to the other side. In the meantime, those companies should be taking advice on the financial reliefs which the government have recently introduced, such as; Job Retention Schemes, VAT deferment, Time to Pay, Business rate reliefs and Business Interruption Loan Schemes. My tax partner, Mark Tibbett, has summarised a number of these reliefs which can be found here.
Despite the difficulty with the current ‘lockdown’, it is inevitable that there will be companies out there that will need to close permanently, often by way of a Liquidation. In some cases, these can and should commence sooner rather than later. Directors will have to weigh up their statutory duties as a director against keeping a company open. Mindful not to incur any further debt or prefer any creditors in the interim period, directors should be seeking advice and recording all steps taken to mitigate further personal risk.
As a firm, we will endeavour to keep you updated with any further reliefs which may become available. If you or a client are worried and want to discuss your business, please do not hesitate to contact me.
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